Titan gets warm reception on debut; GenCorp weakens with stock; Citi bid higher in gray market

By Rebecca Melvin

New York, Dec. 16 - Trading activity in the convertible bond market was stimulated by five new issues released for secondary trading on Wednesday.

"It kept people busy," a New York-based sellside trader said.

A West Coast-based sellsider said, "It breathed new life into the market: you know, in with the new, out with the old."

Both newly priced paper and old issues changed hands. Also possibly stimulating trades were higher oil and commodity prices and the Federal Reserve's decision to keep its target range for its bank lending rate at zero to 0.25%, as expected, and where it has been for the last year.

Convertible pricing was steady to higher, without a lot of selling. Names mentioned that have not recently been heard in trade were Carnival Corp. and Fluor Corp.

But nevertheless, it wasn't a huge volume day.

Of the new issues, three generated substantial investor interest and traded actively, and two were so-called "pre-packaged" deals that weren't heard in trade.

Titan International Inc.'s newly priced 5.625% convertibles traded at 103.25 versus a share price of $7.80. The stock held up and so did trades around 103, a syndicate source said.

It was Titan that was the pleasant surprise of the day. Demand for the deal was so good that the offering was doubled to $150 million of convertibles from $75 million.

"People liked it," a syndicate source said.

The opposite seemed true of GenCorp Inc., which saw its newly priced 4.0625% convertibles move lower in active trade early on along with its underlying shares, which dropped 5% on the day.

"Probably the Titans had more interest and did better. Hedge guys started out as hedgers, but some decided to hold it.

GenCorp sold off with its stock, and toward the end of the day were seen around 101.75 versus a share price of $6.75.

Host Hotels & Resorts Inc.'s newly priced 2.5% convertibles were up early - but not by as much as the other two - at 102.375 versus a share price of $10.75. Its stock traded mostly in positive territory and ended up 2.6%.

Meanwhile, Griffon Corp. newly priced 4% convertibles were pretty quiet, although seen higher when the stock was in positive territory, at 102.375 versus a share price of $12.25.

A fifth deal, a $50 million issue from Technitrol Inc., was described as a non-event, given that it was a private deal issued under section 4(2), which means very few people bought the issue, perhaps only a handful, according to a New York-based sellside analyst.

Citigroup Inc.'s $3.5 billion convertible mandatory preferred offering was seen in the gray market again Wednesday ahead of pricing expected after the close. The deal was seen at plus 1.5 points, locked, the sellside analyst said.

Volume was pretty light despite the calendar, with one sellsider, suggesting that market participants were maybe "keeping their powder dry for Citi."

Titan gets positive reception

Titan's newly priced 5.625% convertibles traded at 103.25 versus a share price of $7.80.

Shares of the Quincy, Ill.-based maker of wheels, tires and assemblies for off-highway vehicles settled down 2 cents, or about one-quarter of a percentage point, at just that level: $7.80.

The offering was upsized to $150 million of seven-year convertible senior subordinated notes from $75 million, and it priced at the midpoint of talk, which was 5.375% to 5.875% for the coupon and 35% to 40% for the premium.

The base conversion price is $10.75. If the stock price at the time of conversion exceeds this level, the base conversion rate of 93.0016 will be increased according to a formula.

The deal was brought by Goldman Sachs & Co. as bookrunner, with co-managers KeyBank, Oppenheimer & Co. and Sterne Agee Group Inc.

GenCorp premium prices outside talk

GenCorp's newly priced 4.0625% convertibles sold off with their stock. Early on they were at 103.25, but later they were called 100.75 bid, 101.75 offered versus a share price of $6.75.

Shares Rancho Cordova, Calif.-based defense company slid through the day, ending down 40 cents, or 5.7%, at $6.66, in heavy volume.

"The problem with GenCorp is that its stock got hit, arb people were getting their short off to hedge their long position," a sellsider said.

GenCorp sold an upsized $150 million of 30-year convertible subordinated debentures at par after the close of markets Tuesday to yield 4.0625% with an initial conversion premium of 27.5%, according to a market source.

The Rule 144A offering priced near the midpoint for the coupon, which was 3.75% to 4.5%, but beyond the aggressive end of talk for the premium, which was 20% to 25%.

GenCorp also upsized to $150 million, but the increase was just up $25 million from original talk.

Morgan Stanley & Co. was the bookrunner of the offering, which has an over-allotment option for up to an additional $50 million, which was increased from an originally talked $18.75 million of debentures.

The convertibles are provisionally callable for life at a price hurdle of 150%. If they are called within the first five years of life, the coupon has a make-whole provision that will be equal to the present value of the first five years of coupons at a 2.5% discount rate.

Holders can put the debentures in years five, 10, 15, 20 and 25, on Dec. 31, 2014, 2019, 2024, 2029, and 2034, respectively.

Host prices $350 million deal

Host's newly priced 2.5% convertibles due 2029 traded at 102.375 versus a share price of $10.75 earlier in the day.

Host shares added 30 cents, or 2.8%, to $11.05 on the day.

While it was the day's biggest deal, and it was upsized $50 million to $350 million, it wasn't an irresistible play.

"I didn't pay much attention to that one. I don't like the company; there's no particular reason. The existing bonds are so boring to me, for one," a sellsider said.

The new paper has an initial conversion premium of 31%, pricing near the aggressive end of talk which was 27.5% to 32.5%, and at the midpoint of talk for the coupon.

The greenshoe was reduced to $50 million from an originally talked $60 million to cover over-allotments.

Deutsche Bank Securities Inc., Bank of America Merrill Lynch and J.P. Morgan Securities Inc. were joint bookrunners of the offering.

Host is a Bethesda, Md.-based real estate investment trust focused on ownership and operation of hotel properties.

Griffon mostly quiet

Griffon's newly priced 4% convertibles traded at 102.75 versus a share price of $12.25.

Shares of the New York-based manufacturer of telephonics, building products and plastics settled lower, down 22 cents, or 1.8%, at $11.82 on Wednesday.

The Rule 144A subordinated notes, priced at the talked point for the coupon and near the midpoint of talk on the premium, which was 20% to 25%.

Goldman Sachs was the bookrunner, with co-managers Deutsche Bank and Wells Fargo.

The notes will be non-callable until July 15, 2016. The bonds mature Jan. 15, 2017.

Settlement will be in cash, stock or a combination at the issuer's option.

Proceeds will be added to the company's existing cash balance of about $321 million, which will be used for general corporate purposes, including working capital, repayment of debt, or investment opportunities.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Citigroup Inc. NYSE: C

Fluor Corp. NYSE: FLR

GenCorp Inc. NYSE: GY

Griffon Corp. NYSE: GFF

Host Hotels & Resorts Inc. NYSE: HIS

Technitrol Inc. NYSE: TNL

Titan International Inc. NYSE: TWI

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